The Economic Effects of Short-Run Macro Stimulus

President Bush has put forth a stimulus package designed to increase short-run consumption in the macroeconomy. Something is likely to happen given that the Democratic leadership in Congress appears to be on board with trying to stimulate the weakening economy.

But does it work? Under a pure rational expectations economic theory, it may not work. Other theories explain how it could. What does the empirical literature say? For those interested, here is a collection of academic research on the topic from Keynes to Carroll. References provided by David Romer’s Advanced Macroeconomics textbook, chapter 7 entitled “Consumption.”

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